Which of the following statements is FALSE?
A)When the Capital Asset Pricing Model (CAPM)assumptions hold, choosing an optimal portfolio is relatively straightforward; it is the combination of the risk-free investment and the market portfolio.
B)Because all investors should hold risky securities in the same proportions as the efficient portfolio, their combined portfolio will also reflect the same proportions as the efficient portfolio.
C)A portfolio's risk premium and volatility are determined by the fraction that is invested in the market.
D)Graphically, when the tangent line goes through the market portfolio, it is called the security market line (SML).

Question

Quizplus · Accepted Answer

The statement D is false because the Security Market Line (SML) is a graphical representation of the Capital Asset Pricing Model (CAPM) that plots the expected return of an investment as a function of its beta with the market, not a tangent line through the market portfolio. The tangent line through the market portfolio on the efficient frontier graph is actually called the Capital Market Line (CML).

Which of the Following Statements Is FALSE